Issues to consider while preparing Projected Financial Statements ...

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The Compass Group PLC specializes in providing food and catering services to various institutions, schools, hospitals around the world. They started as domestic operator in London in 1992. Within a short period of only 17 years, they have expanded to achieve a truly global reach with operations based out in 55 countries. The Compass Group PLC is present 40000 locations. (Financial Report, 2008)

The business strategy of Compass Group is a unique one; operations are executed mostly from the premises of the customer they serve and this allows them the comfort of low investments.

This paper is aimed at two goals; it researches the performance of the company using financial ratios and also uses the CAGR method to forecast the financial performance of the company for the year ending September 30, 2009.

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All data used in preparation of this report has been collected from the company annual reports. Data for the past four years has been used, starting from 2005. On an average, sales have witnessed an upward trend, except for the odd year of 2007 when it fell by five percent to ?10,268 million. The CAGR for the sales revenue has been calculated at 2.6%, which predicts the 2009 sales figure to be ?11,735 million. A positive growth in sales is accompanies by a positive growth in operating expenses. The CAGR in operating cost comes to around 2.2%, which accounts for a projected figure of 11,020 million. The operating profit which is the difference between sale of goods and costs of goods sold grows by an impressive 11.0% which pushes up the 2009 Operating profit figures to 727 million. The operating profit thus obtained is added to the share of profit from associates to arrive at the total operating profits. Since, the figure of share of profit from associates is zero in 2005; it has been assumed that the figure of 2009 will remain same as that of 2008. The total operating profit figure for 2009, hence, stands at 733 million.

The financial income for the period of last four years has grown by 46.5 %. Individually, the growth rates for 2006 and 2007 have been the main drivers of this cumulative figure. A commendable outcome of the financial strategies has been the reduction in the cost of finance, which has come down from 156 million pounds in 2005 to 100 million in 2008. In CAGR terms, this amounts to a decline of 8.5%. The estimated cost of finance for the year 2009 is predicted at 91 million.

The profit before tax figures are calculated by adding finance income to and subtracting cost of finance and hedging account effectiveness from the total operating profit figure. An impressive increase in finance income and hedging effectiveness has affected a positive rise in the profit before tax figures by 19.4%; the figures of the same as per estimation is likely to be 676 million in 2009.

The tax liability of the company has marked a steady rise all throughout the period at a rate of 11.7%. As a result, the predicted figures for the same have been calculated to be 189 million.

The profit after tax consists of two components; profits from continuing operations and profit from discontinuing operations. The profit from continuing operations is calculated by subtracting the tax liability from the profit before tax figures. Figures for profit from dis continuing operations have been taken directly from the published financial reports of the company. The sum of these components gives a forecasted profit after tax figure of 525 million for the year 2009.

The performance of the company gets reflected in its capital market indicators as well. The EPS figures have witnessed a healthy growth of about 24% in both its basic and diluted form. The estimated EPS figures for 2009 i.e. pegged at 29 pence.

In order to keep things Simple while analysing the balance sheet, only the major components have been taken under the preview of research. For ease of comparison, the percentage CAGR figures have been rounded to nearest whole numbers.

A comparison of the 2007 and 2008 figures reveal that both total assets and total liabilities have increased; total liabilities have increased more than total assets by about a margin of 1%. The company has increased its capital assets, in the form of plants and machinery, by about three percent to 4,532 million in 2008. Using the growth rate of 6%, the projected capital assets figure for 209 stands at 4789 million. Our analysis reveals that the company?s ammortised goodwill will over the time period at a rate of 5% to3454 million. In addition to this, the intangible assets have undergone a change; it demonstrated?? a rise of 13% for the year ended on 30 September 2008. The figures for the same are predicted to be around 442 million.

There has been no significant increase in current assets; it has increased by only 16 points to 2389 in 2008. The non descript rate of growth assumes that it will near 2397 million in 2009. This is accompanied by an increase in inventories by 9%. Since the company provides catering services, it will need to maintain inventories to be able to cater to demands of the customers. As a natural consequence, a growth in business will get reflected in the growth of inventories.

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